Saving the Middle Class

According to a new study by the Pew Research Center, “The American Middle Class is Losing Ground,” the number of “middle class” households is now less than those in the “upper class” and “lower class” combined.  We put “name of class” in quotes, because we just have a gut reaction to being described as belonging to a class in a legally classless society.  We’ll try not to do it again, at least today.  We’ve made our point.

"We're shrinking, Pa. Do you feel it?"

Anyway, as reported on The Washington Post’s “wonkblog” on Wednesday, December 9, 2015 (Michael A. Fletcher, “Income Inequality Has Squeezed the Middle Class Out of the Majority”), there are two reasons for this.  One, more Americans are moving into the upper income brackets.  That’s good (especially if it’s us we’re talking about).  Two, unfortunately, even more Americans are moving into the lower income brackets.

This puts a really bad skew on things.  “Middle income bracket” is defined as being between two-thirds the median income, and twice the median income.  Below two-thirds is the lower income bracket, while above twice is the upper income bracket.

Naturally, there are a number of experts (usually those making more than twice the median income) telling us that this is not a problem.  Americans are wealthier in terms of income than they have ever been before.  Using the median income for the U.S. for 2014, $53,657, two-thirds is $35,771, still a nice piece of change.  There are millions of people on earth right now who would be quite happy with that, and consider themselves rich.

We, however, see two very serious problems with that.  One, that’s how much people are bringing in, and it’s not net, it’s gross.  You still have to take out for taxes and other things, and that’s before you start spending on what you need to live, i.e., food, clothing, and shelter.

"You are for ever floored.  As I am!"

You can’t just look at income, then, you have to look at outgo.  And that’s where Americans are really coming a cropper.  As Mister Micawber said to David Copperfield,

“My other piece of advice, Copperfield,” said Mr. Micawber, “you know. Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and — and in short you are for ever floored. As I am!”

According to the U.S. National Debt Clock (accessed 2:00 pm last Friday), “Personal Debt Per Family” is $53,785.  Thus, the average amount of debt per family at $53,785 is a touch more than median household income at $53,657.

Now, strictly speaking, this is comparing apples and oranges.  “Average per Family” is not the same measure as “Median per Household.”  They’re pretty close, however, and to reject the figures because they are not exact equivalents is just plain stupid.  We can be pretty sure that, assuming the figures are reasonably accurate, a typical family/household’s income is matched by the debt it’s carrying.

"Danger, Will Robinson. I got your job and your date."

So, if Americans are “getting wealthier” because of increasing income, it’s income that’s already been spent in many cases, so how are people “getting wealthier”?

Two, what is the source of the income?  In most cases for the middle class, it’s wages and salaries.  That’s pretty much the same for the lower income brackets, although those are supplemented with welfare and other redistribution.  For the upper brackets, though, the higher you get, the more likely it is that labor income shrinks, while capital income increases proportionately.

Plus, there’s the fact that advancing technology and the flight of jobs to lower wage countries is taking away a lot of jobs from Americans.  And, frankly, there’s nothing anyone can do about that.  If you forbid the “export” of jobs, you just increased the incentive to invest in capital equipment to replace increasingly expensive labor.  A minimum wage of $15.00 sounds dandy to the recipient . . . as long as the recipient has a job that pays that.  It doesn’t sound quite so dandy to the employer, who starts to look around for alternatives that cost (and complain) less.

Fortunately, there is a way out of this mess.  The tax and monetary reforms combined with an aggressive program of expanded capital ownership of Capital Homesteading were designed to resolve this situation.  Make all owners of labor into capital owners, and the problem solves itself.

#30#